What is family settlement?
A family settlement is precisely a mutual agreement between family members regarding the distribution of property assets among themselves. The parties to this family settlement must be related to each other and must have a legal right to share in the property in question.
Moreover, a family settlement may or may not be limited to property, but can also enclose movable assets like cash, money in bank accounts, cars, bikes, jewelry, etc. However, a family settlement agreement is ordinarily used to amicably settle common property or joint property that a family owns as against self- acquired or individual property.
Types of Dispute in a Family Settlement
- Dispute over partition: A deed of Partition ensures that each member of the family receives one’s rightful share. However, any existing of a past souring of relations among family members can lead to a forced partition. Every partition of property comes with its own legal and financial implications. With partition, joint ownership comes to an end.
- Dispute over inherited property: Inheriting a property as heirs under a will or to joint tenants once a family member passes away creates the scope of a potential dispute with respect to future management and ownership. This might happen because the heirs might grow resentment against each with respect to the inherited property. Another reason for disputes over inherited property might be a difference in the legal interpretation in the reading of the will.
- Purchasing of property jointly with family members: Sometimes family members purchase property together for various reasons like investing in real estate or for shared ownership. However, despite the fact the joint purchase has been effectuated with a family member, such purchases can lead to divergence in interests and the deal can go sour.
What is Partition Deed for a Property?
The term Partition Deed is used to classify a deed that will divide up the said property, thereby making each of the co-owners as the rightful owner of the property share. When the property is owned by several individuals, a partition deed makes sure there’s a legal division of the property. Upon the execution of a partition deed, each co-owner is entitled to transfer, gift or sell their share of the property according to their will.
When the family decides to go ahead with the partition deed, a partition suit is required to be filed. A partition suit is filed when there are any disputes towards the rights of the property, and you approach a court to settle the dispute. If all parties involved are ready to amicably settle all disputes, a partition deed needs to be executed.
Legal Requirement for a Partition through Family Settlement
There are certain pre-requisites that are applicable with respect to a family settlement arrangement.
- Firstly, there must exist assets that are a part of a common pool.
- Secondly, there must exist an antecedent right or title over such assets.
- Thirdly, the arrangement in the form of deed spells out the title and right of the parties along with an acknowledgement.
- Fourthly, the arrangement must be voluntary in nature and not induced by undue pressure and influence or fraud.
Thereafter, each member is required to relinquish rights or title over any asset and property other than the share falling in his or her part. A conveyance deed recognizing the transfer of rights over the transferred assets is however not required under the family arrangement.
Procedure of a family settlement agreement
A family settlement is a peace-making procedure where an outsider, generally a senior family member or a lawyer, counsels, assists as well as guide the entire family to arrive at a mutually acceptable solution regarding the property dispute. Additionally, this family settlement agreement does not necessarily have to be a single legal document comprising the entire division of the family property when it can also be a bunch of legal documents analyzing the property rights of every family member.
As per the provisions of the Income Tax Act, 1961, a settlement agreement is neither a transfer of property nor a gift. As a result, exclusive transfer of property documents will also have to be pulled out with the said family settlement agreement to be able to execute an actual transfer of property.
Can family settlement of a self- acquired property be done?
A self- acquired property is the property:
- made by an individual by his own resources or,
- which the individual has inherited from someone according to the law of succession or,
- has inherited or obtained through will or,
- which has come to the individual after partition of property.
As a result, settlement of a self- acquired property cannot be executed during the lifetime of the individual who had originally obtained it, however at the same time, a self- acquired property naturally becomes a part of the ancestral property on the death of such individual. Although, the individual can allot the self- acquired property via his or her Will to any individual he wishes.
Legal Cases related to Partition through Family Settlement
- Kale and Ors. v. Deputy Director of Consolidation and Others
The Supreme Court in the case has enumerated the essentials of a family settlement and states that registration would be necessary only if the terms of the family arrangement are reduced to writing.
Secondly, whether the impugned document of family settlement which though was inadmissible in evidence could be used for any collateral purpose, the Supreme Court held that in a suit for partition, an unregistered document can be relied upon for collateral purpose i.e. severance of title, nature of possession of various shares but not for the primary purpose i.e. division of joint properties by metes and bounds of joint properties by metes and bounds.
- Thulasidhara v. Narayanappa
The Supreme Court has held that a family arrangement, in the form of a document that mentioned the list of properties which were partitioned, though not registered, would operate as a complete estoppel against the parties to such a family settlement.
It was held that even without registration a written document of family settlement or family arrangement can be used as corroborative evidence as explaining the arrangement made thereunder and conduct of the parties.
About the Author – Aditya Pratap
Aditya Pratap is a lawyer practising in Mumbai. He argues cases in the Bombay High Court, Sessions and Magistrate Courts, along with appearances before RERA, NCLT and the Family Court. For further information one may visit his website adityapratap.in or view his YouTube Channel to see his interviews. Questions can be emailed to him at firstname.lastname@example.org.
Cases argued by Aditya Pratap can be viewed here.